A critical part of credit card processing entails the fees associated with a transaction. You will spend several percentage points of your credit card dues on these processing rates.
The charges you spend when accepting credit card payments will keep you from maintaining the best possible cash flow. But you can control your processing rate when you look at what is open on the market and how you run your business.
A General Rule of Thumb
A good credit card processing rate will be from about 3 to 5 percent. The total reflects the common fees you will spend when accepting credit card payments.
The best rate will be closer to the 5 percent mark if you accept more card-not-present transactions or you’re in a high-risk field. But a 3 percent rate is possible if you keep your risks under control.
The Three Main Fees
There are three particular fees you will spend when accepting credit cards. Not all of them are in your control:
- Interchange Fee
The interchange fee is the rate a credit card network will charge for access to its cards. This non-negotiable fee can be worth 2 to 3 percent on average.
The interchange fee will vary surrounding the network in question, your industry, and the type of payment you complete. High-risk industries that are subject to chargebacks and fraud risks will likely pay more money. Visa and MasterCard charge low fees in most situations, while American Express traditionally imposes higher fees.
You can contact one of these networks to see what your rate would be before agreeing to accept cards in that network. Some networks may have very specific rules surrounding what you can utilize when getting a card.
You could also adjust how your business operates and find ways to qualify for lower rates. You could offer products or services that qualify for reduced interchange fees, for example. Some businesses may qualify for different rates for all the things they provide.
- Assessment Fee
An assessment fee goes alongside whatever interchange fee you spend. Visa charges its retailers a Network Acquirer Processing Fee for access to the Visa system, for example. The fee can be a couple of tenths of a percentage point, and it is also non-negotiable.
- Markup
You will also pay a markup from your credit card processor. The merchant service provider who helps you process these charges will add a small fee to each transaction. It can be an interchange-plus charge or a tiered rate that varies by value. It can be less than one percentage point in most situations. This charge is negotiable, as it is not under the network’s control.
Review Your Current Processing Charges
A good way to see if you need a better credit card processing rate is to review your most recent processing statement. The report should highlight how much you earn in net sales and what you’re spending on everything else. These include interchange rates, authorization fees, card association fees, and other expenses. You can divide your expenses with your sales to figure out the rate for your current statement.
You can search for a new processor if you feel your rate is too high. But be cautious when finding a processor, especially since some of them may force you into long-term contracts you cannot get out of without paying a small fortune for doing so. A monthly agreement that offers useful rates without locking you into something undesirable is always welcome.
Extra Considerations For a Quality Rate
Some factors may influence whether you can qualify for a quality rate:
- High-risk industries pay more in processing rates. Some networks will let you submit information on your business to clarify your industry, potentially helping you qualify for a lower rate in a lower-risk field.
- Some processors may hide assorted fees in their contracts. Check any contract or deal you wish to enter to see what charges are involved.
- You could bring in more international transactions on average. International deals require extra fees for currency conversion efforts.
- Sometimes the processor’s markup may be too high for your industry. You can check around the market to see what choices are open when finding a better deal.
Look At the Sizes of Your Sales
Check how much people spend on average at your store. You might find you’re spending more than necessary, depending on how you’re being charged.
Businesses that regularly accept small-value payments can be hurt by flat interchange rates. The effective rate could be higher due to the extra charge necessary for some payments. Some processors can prepare different charge systems where businesses that process high-value items will pay more significant rates.
Do You Accept Transactions In Person?
One reason why processing rates are often high for some businesses entails whether they accept in-person transactions. A business that accepts card-present transactions will pay lower interchange fees and won’t spend as much on software. The chargeback risk is also lower, thus giving the retailer access to lower rates.
A business that accepts card-not-present transactions will pay higher interchange fees and will spend more on software that can handle online gateways. There’s also a greater chargeback risk.
Review how you accept your transactions to see if you’re at risk of possible losses. Be willing to raise your desired rate by a bit if you operate online, with your risk of fraud and chargebacks being greater at this point.
The General Goal
The main point here is for you to look at your current processing statement and to figure out what you should be doing for your own work. Be aware of how much you’re processing at a time and that your current processing expenses are in check.
The 3 to 5 percent threshold is an ideal one to look for when finding the best credit card processing rate. You won’t be able to fix some things, but you can correct some issues surrounding CNP deals, your line of work, and how much your processor will charge for services.